Accounting for franchise restaurants is a business function that’s absolutely critical to get right. In an industry of thin margins and high-volume transactions, it’s not hyperbole to suggest that consistent and accurate accounting can be the difference between sustained, efficient growth and spiraling decline. Restaurant franchise accounting is essential for controlling your costs, keeping track of operational finances, and ensuring your restaurant is performing well enough to hit growth goals
Restaurant franchise accounting activities include everything from accurately recording transactions to creating detailed financial reports. Proper accounting practices allow you to analyze and optimize performance metrics, such as profitability and sales revenue.
This is why everyone on your staff that contributes to sales or costs needs to understand the basics of restaurant accounting. From there, owners, operators, controllers, and the likes should work to streamline accounting and bookkeeping with restaurant-specific automation tools.
A restaurant accountant’s responsibilities typically include the following tasks:
Recording transactions in the general ledger—the master document for capturing financial transactions
Accurately coding and categorizing those transactions, especially expenses
Analyzing ledger and journal entries
Accounts Payable (i.e. processing invoices/bills and paying vendors)
Bank Statement Reconciliation
Creating financial statements to determine financial health including the balance sheet, income statement, and cash flow statement
Defining budgets, benchmark KPIs such as COGS ratios and prime costs, and tracking performance toward goals
Completing tax returns & providing tax advice and assistance
Offering financial insights and advice
Auditing
Restaurant Specific Accounting Considerations
There are several considerations that make accounting in the restaurant industry unique, including:
Tip Handling
Restaurants choose or are held to different methods of tip handling. Whether it’s tip pooling, splits, or tips by paycheck vs. cash tips — it can be tricky keeping your employees happy while maintaining an accurate balance sheet and payroll taxes.
Inventory Management Like most businesses, restaurants must manage an inventory of raw materials that will be converted into a final product that is sold to customers. Restaurant inventory management allows you to account for and carefully manage the value of these raw materials on your balance sheet to minimize the cost of goods sold.
Profit and Loss (P&L) / Cash Flow Statements Creating frequent P&L statements can have a significant impact on your business. Knowing how your restaurant is performing not only on a monthly and even weekly basis can provide more costing visibility so you can take action sooner. A week-to-week view gives insight to your sales and cost trends, making it easier to control your cash flow and know where your finances stand at all times.
Vendor Credits / Short Pays Sometimes a delivery doesn’t include everything you’ve been billed for. Items you’ve purchased from your vendor may spoil or not meet your quality standards. In those cases, you should request a vendor credit and adjust the invoice total. You can either “short pay” the vendor (subtract the credit from the invoice and pay only what you owe) or pay the full amount and account for a credit. Ultimately, you need to account for vendor credits and ensure you’re not overpaying for goods you didn’t receive. Keeping proper documentation on vendor credits will help resolve any disputes when the vendor submits a monthly vendor statement that you must reconcile against all invoices from that vendor.
Franchise Specific Accounting Considerations
Initial Fees Virtually any franchise agreement includes an initial fee that gives the franchisee the right to operate under the franchisor’s brand. This typically includes conditions around name, trademark, and operating systems. Additionally, the initial fees may also pay for equipment, construction, or renovations that enable opening a franchise location.
Amortization Amortization periodically lowers the book value of an intangible asset over a period of time. We’ve included the term here because it’s common practice for franchisees to amortize the initial fees associated with franchise startup. A common franchise amortization term is 15 years.
Royalty Fees In addition to initial fees, franchisees are typically required to pay ongoing royalty fees, as well. Crisp’s Franchise Billing platform allows you to use your aggregated sales to automatically calculate royalty fees.
Marketing Fees Many franchises also charge franchisees marketing fees, which power the marketing budget for the brand as a whole and presumably benefit franchisees in the process. Crisp’s Franchise Billing platform allows you to use your aggregated sales to automatically calculate brand development (marketing) fees.
Financial Reports Consistent financial reporting is key for a Franchisor. Franchisors need to be able to compare performance across locations and between many businesses. One way to make financial reporting a breeze for both the franchisor and the franchisee is to use a restaurant software platform with reporting built into the system.
Key Benefits of Successful Restaurant Accounting
Make Informed Financial Decisions You can’t improve what you don’t track. Tracking your numbers and KPIs will let you know what business areas require urgent attention.
For example, if your cash flow statement tells you cash flow is negative (more money is flowing in than out), you’ll know it’s time to take swift action. This involves reducing your monthly expenses — maybe by finding a new supplier or going for lower quality goods — increasing sales through a special promotion, or finding external financing for a cash injection.
Improve Budgeting Your budget is your future financial plan that consists of both your planned income and expenses. Proper accounting lets you create accurate budgets by giving you past financial data to predict future revenue and expenses.
Remain Compliant Accurate accounting prevents legal disputes with the internal revenue service over incorrect numbers. It also ensures you adhere to specific accounting principles. In the United States, businesses need to follow the Generally Accepted Accounting Principles (GAAP). These are the principles, procedures, and processes companies and accountants must follow when creating financial statements.